Legislature(2001 - 2002)
02/26/2001 01:03 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 119 - PUBLIC UTILITY JOINT ACTION AGENCIES Number 1315 CHAIR ROKEBERG announced that the next order of business would be HOUSE BILL NO. 119, "An Act exempting joint action agencies from regulation by the state or municipalities; relating to the relationship between a joint action agency and the public utilities that form the joint action agency; relating to powers and immunities of a joint action agency; requiring filing of the joint action agency agreement; relating to the financial affairs of a joint action agency; declaring certain joint action agencies to be political subdivisions for certain purposes; relating to liability and indemnification of officers, employees, and agents of joint action agencies; and defining 'agency agreement' as used with reference to joint action agencies." [Before the committee was CSHB 119(L&C).] Number 1298 REPRESENTATIVE PEGGY WILSON, Alaska State Legislature, sponsor, explained that HB 119 was a technical cleanup of last year's legislation that created the Power Cost Equalization (PCE) Endowment and authorized the sale of the Four Dam Pool project. She submitted an amendment that contained changes recommended by the Department of Law. Number 1178 BRIAN BJORKQUIST, Assistant Attorney General, Governmental Affairs Section, Civil Division (Anchorage), Department of Law (DOL), testified via teleconference and explained the proposed amendment. He mentioned that his primary client agency was the Alaska Energy Authority (AEA). The proposed amendment [later adopted as Amendment 1] read as follows [original punctuation provided]: Page 3, line 15: Following "utility" insert "or the state" Page 3, line 18: Following "utility" insert "or the state" Page 3, line 30: Following "(5)" insert "in addition to the powers of eminent domain in AS 42.05.631," Page 3, line 31: Following "materials" insert "within the boundaries of the power project purchased by the agency from the Alaska Energy Authority" Page 4, line 1: Following "agency" delete "within the boundaries of the power project purchased by the agency from the Alaska Energy Authority" MR. BJORKQUIST went on to say that the changes encompassed in the amendment consisted of two different categories. The first category of changes, found on page 3, lines 15 and 18, would clarify the purpose of [Section 6], which stipulated that the Joint Action Agency (JAA) was a separate legal entity responsible for its own debt and liability. Current language expressly excludes public utilities from being responsible for liabilities, and the proposed amendment would include the state in the exclusion. He added that though the amendment was perhaps excessively cautious, [the DOL] wanted it clarified that the state would not be responsible for the liabilities of the JAA. He pointed out that Section 6, subsection (c), paragraph (4), expressly referred to the state with regard to a debt obligation of the JAA, and said that the concern was that the language would be construed to mean the legislature intended to obligate the state in earlier text. Number 1010 MR. BJORKQUIST explained that the second category of changes found on page 3, lines 30 and 31, and continuing on through page 4, line 1, would clarify the powers of eminent domain and declaration of taking for the JAA. Currently the JAA has the powers of eminent domain but lacks the power of the declaration of taking. The Four Dam Pool public utilities had requested an express provision for the declaration of taking because it would help convince the Internal Revenue Service (IRS) that [the JAA] was a tax-exempt entity. Mr. Bjorkquist also explained that declaration of taking was a subset of eminent domain powers; declaration of taking allowed the party to the taking to take possession of the property prior to the end of the eminent domain litigation process. He added that the amendment intended to limit the power of declaration of taking, but not the power of eminent domain, to the boundaries of the power project. He clarified that the amendment would not affect the powers of eminent domain of the JAA already provided for in AS 42.05.631. MR. BJORKQUIST, in response to questions from Chair Rokeberg, said that the boundaries of the power project referred to the physical, geographic boundaries of the project. These boundaries would primarily be defined by the Federal Energy Regulatory Commission (FERC) license. The one transmission line that may fall outside of the FERC license would be defined by the purchase-and-sale agreement between the AEA and the JAA. He confirmed that all rights-of-way and premises were defined by those documents. He also agreed that the right of eminent domain in taking within the boundaries would be expanded to create the taking power for tax purposes in addition to maintaining the right of eminent domain to acquire rights-of- way, if needed. One of DOL's intentions with the amendment was to maintain the existing law that enabled JAA to have the power of eminent domain outside the boundaries of the power project. Number 0585 MICHAEL E. SCHRADER, Attorney at Law, AterWynne LLP, Counsel to Four Dam Pool Project Management Committee, testified via teleconference. He said that HB 119 was the result of extensive work by the member utilities, the project management committee, the Attorney General's office, and other interested parties who are working to complete the sale of the Four Dam Pool. With the enactment of the enabling legislation, the JAA was formed to take the place of the state as the owner of the Four Dam Pool Project. The JAA will sell power from the project, pursuant to the existing sales agreement, to each of the five member utilities. MR. SCHRADER went on to say that during the course of the negotiation and execution of the JAA agreement, a number of issues arose. Many of those issues were resolved within the terms and provisions of the JAA agreement, which is the document that creates the JAA and defines the relationship of the member utilities. However, some issues still needed to be addressed through other means. He said that HB 119 was designed to address all of those issues. MR. SCHRADER said that the corrections and additions contained in HB 119 would do essentially four things: first, provide a basis from which to obtain clarification from the IRS on the federal tax status of the JAA; second, confirm the tax status of the JAA under state law; third, confirm the relationship between the member utilities and the JAA as well as the liability of the JAA; and last, define the scope of regulation by the Regulatory Commission of Alaska (RCA) on the JAA. MR. SCHRADER clarified that the provisions in HB 119 regarding eminent domain or condemnation powers of the JAA pursuant to the declaration of taking procedures were driven entirely by the need to have the JAA characterized for federal tax purposes as either a governmental unit or a political subdivision. He explained that the IRS looks to see if an entity has the ability to exercise a sovereign power when determining if that entity is governmental in nature. The power of condemnation is deemed to be a sovereign power; therefore, giving the JAA the appropriate level of condemnation power is essential for treatment as a governmental unit by the IRS. This treatment is also essential to the success of the divestiture because it would enable the JAA to operate on a tax-exempt basis. Another advantage would be that the future sale or transfer of individual projects to participating member utilities would not be subject to federal tax laws. Number 0080 MR. SCHRADER said, with respect to the state tax status of the JAA, that the provisions in HB 119 confirmed that the JAA would be exempt from state and local taxation, with the exception of the electric cooperative tax, should the JAA engage in retail sales of power in the future. He added that under the current power sales agreement there are not any provisions for sale of retail power, and the JAA currently does not intend [sell retail power] upon becoming the owner of the project. He recapped that the objective was to maintain the status quo in terms of the treatment towards the JAA with regard to federal and state tax purposes when the JAA replaces the state as the owner of the project. A couple of other points Mr. Schrader wanted to touch on were.... [Tape ends mid-sentence.] TAPE 01-26, SIDE A Number 0001 MR. SCHRADER continued, "... that obligations, debts, and liabilities of the joint action agency [JAA] are solely those of the joint action agency, that it is a separate and distinct legal entity from the member utility which formed the agency." He noted that this language is consistent with other limited liability entities created under Alaska law, from public entities, such as port authorities, to private entities, such as corporations and limited liability companies. The language in Section 6 makes it clear that "the joint action agency is a separate and distinct legal entity" and, therefore, any claim would only be against the JAA, not the member utilities. Number 0127 MR. SCHRADER turned to the scope of regulation by the RCA of the JAA. Under current Alaska law, the Power Sales Agreement defines the rights of the member utilities and the price at which power will be sold from the Four Dam Pool project to the member utilities. The Power Sales Agreement is exempt from review and approval by the RCA. He explained that in accordance with HB 446, which was adopted last year, the exemption of the Power Sales Agreement from the review and regulation of RCA was extended to cover the assignment of the Power Sales Agreement to the JAA upon the closing of the sale of the project by the state to the JAA. However, that exemption only continues so long as the JAA is indebted to the state for the purchase price of the project. MR. SCHRADER noted that as "we" went through AS 42 and worked with the representative of RCA, it was determined that there was an inconsistency in terms of the scope of regulation; it wasn't clear where the JAA fits in the regulatory scheme. Therefore, HB 119 creates consistency in the scope of the RCA's regulation. In other words, the provision in HB 119 now provides that the JAA is exempt from all RCA regulations with respect to the JAA's ownership and operation of the Four Dam Pool project until the indebtedness is paid in full. Once the indebtedness is paid in full, the JAA would be subject to regulation by the RCA. Number 416 MR. SCHRADER said that this was an overview of the provisions of HB 119. Although these [corrections] are technical in nature, these are essential corrections and additions to the enabling legislation that was enacted last year. These [provisions] are essential to the member utilities and their ability to proceed with divestiture, as well as closure of the sale by the state to the Four Dam Pool JAA. The proceeds from the sale of those projects fund the PCE endowment. In response to Chair Rokeberg, Mr. Schrader said that he has seen Assistant Attorney General Brian Bjorkquist's suggested amendments, and he believes they are appropriate. CHAIR ROKEBERG reviewed the provisions of HB 119. He related his understanding that HB 119 ensures that potential liabilities are limited to the assets, which he surmised to be similar to a limited liability [company] (LLC). MR. SCHRADER agreed that [a JAA is similar to an LLC] in that it is treated as a separate and distinct legal entity with both the power to sue and be sued. He reiterated that any claim against the entity would be limited to the assets of the entity, which is also the case for an LLC, corporation, port authority, or other entity authorized to be created under Alaska law. Number 0433 CHAIR ROKEBERG continued his review of the provisions of HB 119 by saying that HB 119 speaks to the liability of the agency, its tax-exempt bonding authority, and a clarification of the exemptions of RCA regulations. Therefore, Chair Rokeberg understood HB 119 to be an expansion of the powers of eminent domain in order to clarify the safe harbor rules under federal tax status. He asked if that is the primary thrust of HB 119. MR. SCHRADER answered that is correct. CHAIR ROKEBERG referred to Industrial Development Bonds (IDBs) and asked if there is anything in HB 119 that would allow the JAA to expand the scope of, or have any influence on, the allocation for IDB bonds in Alaska. He related his understanding that the JAA would have to compete with everyone else. MR. SCHRADER agreed with Chair Rokeberg's understanding. The committee was at-ease from 2:57 p.m. to 2:58 p.m. CHAIR ROKEBERG closed the public testimony on HB 119. Number 0649 REPRESENTATIVE MEYER moved that the committee adopt Amendment 1 [text provided previously]. There being no objection, it was so ordered. Number 0682 REPRESENTATIVE MEYER moved to report CSHB 119(L&C) as amended out of committee with the accompanying fiscal notes. There being no objection, CSHB 119(JUD) was reported from the House Judiciary Standing Committee.
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